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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
COMMISSION FILE NUMBER 0-27190
PARAMOUNT FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 11-3072768
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE JERICHO PLAZA, JERICHO, NEW YORK 11753
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(516) 938-3400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS
(OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO
FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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NUMBER OF SHARES OUTSTANDING AT AUGUST 11, 1997:
7,950,000 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE.
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<PAGE>
PARAMOUNT FINANCIAL CORPORATION
INDEX TO FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1997
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1 - Financial Statements
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 . . . . 1
Consolidated Statements of Operations
Three Months Ended and Six Months Ended
June 30, 1997 and 1996 . . . . . . . . . . 2
Consolidated Statement of Changes in Stockholders'
Equity Six Months Ended June 30, 1997 . . . 3
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 . . 4
Notes to Unaudited Consolidated Financial
Statements . . . . . . . . . . . . . . . . . 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 6-9
PART II - Other Information . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIAARY
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, JUNE 30,
ASSETS 1996 1997
------ ------------ -----------
(UNAUDITED)
Cash and cash equivalents . . . $ 3,700,774 $ 889,117
Investments available for sale 3,163,841 4,477,320
Accounts receivable . . . . . . 2,260,013 4,328,646
Net investment in direct finance
and sales-type leases . . . . 20,942,542 34,741,229
Assets held under operating
leases, net of accumulated
depreciation . . . . . . . . 21,103,033 15,058,155
Other assets . . . . . . . . . 391,317 463,409
----------- -----------
Total assets . . . . . . . . . $51,561,520 $59,957,876
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable . . . . . . . . . $ 18,384 $ 3,595,971
Accounts payable . . . . . . . 1,062,226 469,655
Accounts payable - leases . . . 18,234,518 785,753
Accrued expenses . . . . . . . 188,169 211,015
Obligations for financed
equipment - non-recourse . . . 23,461,175 46,151,050
Deferred income taxes . . . . . 425,662 425,662
----------- -----------
Total liabilities . . . . . . . 43,390,134 51,639,106
----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none outstanding . . . . . . -- --
Common stock, $.01 par value;
35,000,000 shares authorized,
and 7,990,000 shares issued
and outstanding . . . . . . . 79,900 79,900
Additional paid-in capital . . 13,644,228 13,644,228
Accumulated deficit . . . . . . (5,552,742) (5,406,784)
Treasury stock, 30,000 shares at
cost . . . . . . . . . . . . -- (18,574)
----------- -----------
Total shareholders' equity . . 8,171,386 8,318,770
----------- -----------
Total liabilities and
shareholders' equity . . . . $51,561,520 $59,957,876
========== ===========
See accompanying notes to financial statements.
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PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
UNAUDITED
----------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1996 1997 1996 1997
---- ---- ---- ----
REVENUES:
Sales . . . . . . . . . $21,006,596 $5,814,632 $22,083,893 $6,750,871
Lease revenue . . . . . 798,769 2,814,018 1,446,371 5,423,365
Fee, interest and 92,743 280,089 163,271 780,964
other income . . . . . ----------- ---------- ----------- ----------
Total revenues . . 21,898,108 8,908,739 23,693,535 12,955,200
----------- ---------- ----------- ----------
COSTS AND EXPENSES:
Cost of sales . . . . . 20,117,787 5,258,167 21,082,089 6,033,311
Lease expense . . . . . 792,766 2,741,598 1,352,212 5,190,680
Selling, general and
administrative expenses 685,600 784,906 1,144,911 1,487,542
----------- ---------- ---------- ----------
Total costs and 21,596,153 8,784,671 23,579,212 12,711,533
expenses . . . . . ----------- ---------- ---------- ----------
Income before provision
for income taxes . . . 301,955 124,068 114,323 243,667
PROVISION FOR INCOME 120,783 49,870 45,730 97,709
TAXES . . . . . . . . . ----------- ---------- ---------- ----------
Net income . . . $181,172 $74,198 $68,593 $145,958
=========== ========== ========== ==========
Earnings per $0.02 $0.01 $0.01 $0.02
common share . . =========== ========== ========== ==========
Weighted average common
shares outstanding . . 7,990,00 7,982,308 7,628,571 7,986,133
=========== ========== ========== ==========
See accompanying notes to financial statements.
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PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
UNAUDITED
---------
COMMON STOCK ADDITIONAL
------------ PAID-IN-
SHARES AMOUNT CAPITAL
------ ------ ---------
BALANCE, DECEMBER 31, 1996 . 7,990,000 $79,900 $13,644,228
Net income . . . . . . . . . -- -- --
Issuance of warrants as
compensation . . . . . . . . -- -- 20,000
Purchase of treasury stock . -- -- --
--------- ------- -----------
BALANCE, JUNE 30, 1997 . . . 7,990,000 $79,900 $13,664,228
========= ======= ===========
ACCUMULATED TREASURY
(DEFICIT) STOCK TOTAL
---------- -------- -----
BALANCE, DECEMBER 31, 1996 . . . . ($5,552,742) $ -- $8,171,386
Net income . . . . . . . . . . . . 145,958 -- 145,958
Issuance of warrants as
compensation . . . . . . . . . . . -- -- 20,000
Purchase of treasury stock . . . . -- (18,574) (18,574)
---------- ------- ----------
BALANCE, JUNE 30, 1997 . . . . . . ($5,406,784) ($18,574) $8,318,770
========== ======= ==========
See accompanying notes to financial statements.
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<PAGE>
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
UNAUDITED
----------
1996 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $68,593 $145,958
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 805,020 3,790,698
Amortization of discounts on investments (85,270) (97,183)
Compensation charge for warrants issued -- 20,000
Amortization of unearned operating lease
revenue from sublease transactions (19,928) --
Amortization of prepaid operating lease
expense from sublease transactions 25,067 --
Changes in operating assets and liabilities:
Accounts receivable (713,197) (2,068,633)
Other assets 411,436 (72,092)
Accounts payable 366,850 (592,571)
Accrued expenses (40,246) 22,846
----------- -----------
Net cash provided by operating activities 818,325 1,149,023
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment for direct finance
leases and sales-type leases (17,421,075) (25,381,098)
Termination of direct finance leases 967,998 4,236,465
Proceeds applied to direct finance
leases and sales-type leases 2,074,645 5,012,761
Purchase of equipment for operating
leases (14,547,245) (41,333)
Termination of operating leases 12,700,409 --
Residual value sharing arrangements -- 4,628,698
Purchases of investments (11,184,632) (10,156,296)
Proceeds from sale/maturity of
investments 8,833,924 8,940,000
----------- -----------
(18,575,976) (12,760,803)
Net cash used in investing activities ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock in
an initial public offering,
net of fees 8,398,093 --
Repurchase of common stock -- (18,574)
Proceeds from notes payable -- 3,578,697
Repayment of notes payable (1,592,829) (1,110)
Decrease in amounts due on purchases
of equipment for leases 426,850 (17,448,765)
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<PAGE>
1996 1997
---- ----
Increase in non-recourse lease financing 27,446,278 32,192,094
Termination of non-recourse lease
financing (10,839,734) (885,700)
Repayments and interest
amortization applied to
non-recourse lease financing (2,869,307) (8,616,519)
----------- -----------
Net cash provided by financing 20,969,351 8,800,123
activities ----------- -----------
Net increase (decrease) in
cash and cash equivalents 3,211,700 (2,811,657)
CASH AND CASH EQUIVALENTS, 1,153,476 3,700,774
beginning of period ----------- -----------
CASH AND CASH EQUIVALENTS, $ 4,365,176 $ 889,117
end of period =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ 21,746 $ 28,210
=========== ===========
Cash paid for interest $ 523,203 $ 1,328,337
=========== ===========
See accompanying notes to financial statements.
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<PAGE>
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARY
----------------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions for
Form 10-Q and Regulation S-X related to interim period
financial statements and, therefore, do not include all
information and footnotes required by generally accepted
accounting principles. However, in the opinion of
management, all adjustments (consisting of normal recurring
adjustments and accruals) considered necessary for a fair
presentation of the financial position of Paramount
Financial Corporation and subsidiary (the Company") at June
30, 1997 and its results of operations and cash flows for
the three and six months ended June 30, 1996 and 1997,
respectively, have been included. The results of operations
for the interim periods are not necessarily indicative of
the results that may be expected for the entire year.
Reference should be made to the annual financial statements,
including footnotes thereto, included in the Company's Form
10-K for the fiscal year ended December 31, 1996.
2. The financial statements for the three and six months ended
June 30, 1997 are consolidated to include the results of
Paratech Resources Inc. All intercompany balances and
transactions have been eliminated.
3. Included in cash and cash equivalents is $600,000 of
restricted cash pledged as collateral under a letter of
credit arrangement.
4. In the second quarter of 1997, the Company granted a total
of 165,000 stock options to employees. The Company shall
continue to apply the Accounting Principles Board Opinion
No. 25 and will provide the year end disclosures as required
under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation." In addition, the
Company also entered into an agreement and issued 400,000
warrants to a firm for investment banking services.
5. In March, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ( SFAS")
No. 128 Earnings Per Share." This statement establishes
standards for computing and presenting earnings per share
( EPS") replacing the presentation of currently required
Primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the
dual presentation of both Basic EPS and Diluted EPS on the
face of the statement of earnings. Under this new standard,
Basic EPS is computed based on weighted average common
shares outstanding and contingently issuable shares (which
satisfy certain conditions) and excludes any potential
dilution; Diluted EPS reflects potential dilution from the
exercise or conversion of securities into common stock, or
from other contracts to issue common stock, and is similar
to the currently required Fully Diluted EPS. SFAS 128 is
effective for financial statements issued for periods ending
after December 15, 1997, including interim periods, and
earlier application is not permitted. When adopted, the
Company will be required to restate its EPS data for all
periods presented. The Company does not expect the impact
of adoption of this statement to be material to previously
reported EPS amount.
6. Certain prior year amounts have been reclassified to conform
with the 1997 presentation.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with and is qualified in its entirety by, the
unaudited financial statements, including the notes thereto,
appearing elsewhere in this 10-Q.
GENERAL
Paramount Financial Corporation ("Paramount" or the "Company")
is a comprehensive asset management and information technology
("IT") solution provider offering customers a wide range of
integrated services, including lease finance, IT consulting,
network design and implementation.
The operating results of Paramount are subject to quarterly
fluctuations resulting from a variety of factors, including new
product announcements by manufacturers, economic conditions,
interest rate fluctuations and variations in the mix of leases
written. In addition, the Company's sales volume fluctuates
significantly from quarter to quarter based on the closing date
and nature of each particular sales transaction. The mix of
leases written in a quarter is a result of a combination of
factors, including changes in customer demands and/or
requirements, new product announcements, price changes, changes
in delivery dates, changes in maintenance policies and pricing
policies of equipment manufacturers and price competition from
other lessors. Leasing transactions (other than sales type
leases), in general, do not provide for significant earnings in
the month of lease origination. Instead, revenue, expense and
profit from lease transactions are recorded over the life of the
asset and the lease. Lease revenue and lease expense recognition
is dependent upon a number of factors, including the term of the
lease, the accounting classification of the lease (i.e.
operating, direct finance, or sales type) and the commencement
date of the lease and the lease financing within a particular
period. See "Lease Accounting." Given the possibility of such
fluctuations, the Company believes that comparisons of the
results of its operations for preceding quarters are not
necessarily meaningful and that the results for one quarter
should not be relied upon as an indication of future performance.
During the quarter ended June 30, 1997, the Company continued
to pursue its primary business strategy of developing a high
quality portfolio of essential IT equipment on lease to
relationship based end user customers, while at the same time
evolving into a total technology solution provider. The Company
believes that this strategy will create financial benefits over a
continuum of time, since, unlike other equipment, IT equipment is
frequently upgraded and/or enhanced during the term of its lease.
As a lessor and solution provider, the Company believes that it
is well positioned to meet the ever changing needs of its
customers.
The results of operations for the three and six months ended
June 30, 1997 are presented on a consolidated basis including the
results of Paratech Resources Inc. ("Paratech"), the Company's
system integration subsidiary, which commenced operations during
the third quarter of 1996. The Company believes that the
addition of Paratech is a major step towards establishing
Paramount as a total high technology solution provider. Paratech
generates revenue from sales of desktop computer and related
systems and through sales of technical support services. The
second quarter of 1997 was a period of significant expansion for
Paratech, as the Company greatly increased the size of its
technical, sales and support staff.
Paramount operates in a highly competitive and rapidly
changing marketplace. The Company believes that its ability to
adapt to changes and to evolve into a valued business partner for
its customers, offering a complete package of products in the
high technology area, is a key component to the Company's long
term growth strategy.
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<PAGE>
LEASE ACCOUNTING
In accordance with Statement of Financial Accounting Standard
No. 13, "Accounting for Leases," the Company classifies its
leases as either operating leases or direct finance leases. The
allocation of income among accounting periods within a lease term
will vary depending upon the lease classification, as described
below.
DIRECT FINANCE LEASES: Direct finance leases transfer
substantially all benefits and risks of equipment ownership to
the lessee. A lease is a direct finance lease if it meets one of
the following criteria: (1) the lease transfers ownership of the
equipment to the lessee by the end of the lease term; (2) the
lease contains a bargain purchase option; (3) the lease term at
inception is at least 75% of the estimated economic life of the
leased equipment; or (4) the present value of the minimum lease
payments is at least 90% of the fair value of the leased
equipment at lease inception.
At lease inception, the cost of equipment under a direct
finance lease is recorded as "Net investment in direct finance
leases." The difference between the gross lease payments
receivable, plus the estimated residual value of the equipment,
and the equipment cost is recognized as income over the life of
the lease using the interest method.
A lease transaction which meets all of the above criteria, and
in which the Company has made a dealer's profit, is recorded as a
sales type lease. A sales type lease is a type of direct finance
lease, but one in which the Company recognizes, at lease
inception, revenue and profit which arises from the difference
between the fair market value of the leased equipment and its
acquisition cost.
OPERATING LEASES: All lease contracts which do not meet the
criteria of direct finance leases are accounted for as operating
leases. Monthly lease payments are recorded as operating lease
revenue. Leased equipment is recorded at the Company's cost and
depreciated on a straight-line basis over the lease term to the
estimated residual value at the expiration of the lease term.
The Company's portfolio of equipment on lease is further
divided into equipment owned by Paramount and equipment managed
by Paramount. As of June 30, 1997, the portfolio of equipment on
lease owned by Paramount had a combined net book value on the
balance sheet of $49.8 million and had an original cost basis of
$67.2 million. Equipment managed by Paramount is equipment on
lease to customers of Paramount which was subsequently sold to
investors, but with respect to which Paramount remains the lessor
and remarketing agent. The portfolio of equipment managed by
Paramount had an original cost of $25.6 million. Thus, as of
June 30, 1997, the portfolio of equipment on lease owned and
managed by Paramount had an original acquisition cost of $92.8
million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1996
The Company recorded pre-tax income of $124,000 for the three
months ended June 30, 1997, as compared to pre-tax income of
$302,000 for the comparable period ended June 30, 1996. Net
income for the second quarter of 1997 was $74,200, as compared
with net income of $181,200 for 1996.
Lease revenue, comprised of rental income from operating
leases and interest income from direct finance and sales type
leases, increased by 252.3% to $2.8 million for the three months
ended June 30, 1997 from $798,800 for the comparable period ended
June 30, 1996. Lease expense, which includes depreciation
expense on operating leases, interest expense on lease financing
and sublease rent expense, increased by 245.8% to $2.7 million
for the three months ended June 30, 1997 from $792,800 for the
three months ended June 30, 1996. These increases are
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<PAGE>
a direct result of the Company's continuing efforts to expand
its leasing portfolio. See "General" and "Lease Accounting."
For the three months ended June 30, 1997, the Company recorded
sales revenue of $5.8 million, a decrease of 72.3% over the $21.0
million recorded during the three months ended June 30, 1996. Of
the $21.0 million in sales recorded during the three months ended
June 30, 1996, $12.5 million was the result of a single
transaction involving the sale of equipment under an operating
lease to an investor. See "General." During the first half of
1997, the Company has chosen, wherever practicable, to retain
title to its equipment under operating leases rather than enter
into these types of sales. Of the total sales revenue recorded
during the second quarter of 1997, approximately $1.0 million was
contributed by Paratech. This represents an increase of 100%
over the first quarter of 1997. See "General."
During the three months ended June 30, 1997, the Company
generated $280,100 in fee, interest and other income, compared to
$92,700 for the comparable period last year. The Company
generates fee income from either the sale of equipment under a
direct finance lease to an investor or from commissions earned on
third party lease financing transactions. These transactions
generally come about as a result of the Company's relationship
with other lessors and financial institutions. The Company
cannot predict with any certainty the timing and nature of any
future such transactions. See "General." Interest income is
derived from the investment of the Company's cash balances in
interest bearing cash accounts, cash equivalents and marketable
securities during the period ended June 30, 1997.
Selling, general and administrative expenses ("SG&A") totaled
$784,900 for the three months ended June 30, 1997, representing
an increase of 14.5% over the $685,600 recorded during the three
months ended June 30, 1996. The increase in SG&A is a result of
the expansion of the operations of Paratech and the increased
sales and support staff at the Company. See "General."
The tax provisions of $49,870 for the three months ended June
30, 1997 and $120,800 for the three months ended June 30, 1996,
reflect an effective rate of 40% for federal and state taxes
During the three months ended June 30, 1997, the Company
entered into new lease transactions totaling $15.3 million of
equipment cost, all of which were recorded as direct finance
leases. This compares with $10.2 million for the three months
ended June 30, 1996, of which $8.5 million were recorded as
direct finance leases and $1.6 million were recorded as operating
leases. See "General" and "Lease Accounting." During the quarter
ended June 30, 1997, the Company entered into $11.2 million of
non-recourse lease financing arrangements, as compared with $7.5
million for the three months ended June 30, 1996. See "Liquidity
and Capital Resources."
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE
30, 1996
The Company recorded pre-tax income of $243,700 for the six
months ended June 30, 1997, as compared to pre-tax income of
$114,300 for the comparable period ended June 30, 1996. Net
income for the first half of 1997 was $146,000, as compared with
net income of $68,600 for 1996.
Lease revenue, comprised of rental income from operating
leases and interest income from direct finance and sales type
leases, increased by 275.0% to $5.4 million for the six months
ended June 30, 1997 from $1.4 million for the comparable period
ended June 30, 1996. Lease expense, which includes depreciation
expense on operating leases, interest expense on lease financing
and sublease rent expense, increased by 283.9% to $5.2 million
for the six months ended June 30, 1997 from $1.4 for the six
months ended June 30, 1996. These increases are a direct result
of the Company's continuing efforts to expand its leasing
portfolio. See "General" and "Lease Accounting."
For the six months ended June 30, 1997, the Company recorded
sales revenue of $6.7 million, a decrease of 69.4% over the $22
million recorded during the six months ended June 30, 1996. Of
the $22 million in sales
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<PAGE>
recorded during the six months ended June 30, 1996, $12.5 million
was the result of a single transaction involving the sale of
equipment under an operating lease to an investor. See "General."
During the first half of 1997, the Company has chosen, wherever
practicable, to retain title to its equipment under operating
leases rather than enter into these types of sales. Of the total
sales revenue recorded during the second quarter of 1997,
approximately $1.5 million was contributed by Paratech. This
represents an increase of 200% over the twelve months ended
December 31, 1996. See "General."
During the six months ended June 30, 1997, the Company
generated $781,000 in fee, interest and other income, compared to
$163,300 for the comparable period last year. The Company
generates fee income from either the sale of equipment under a
direct finance lease to an investor or from commissions earned on
third party lease financing transactions. These transactions
generally come about as a result of the Company's relationship
with other lessors and financial institutions. The Company
cannot predict with any certainty the timing and nature of any
future such transactions. See "General." Interest income is
derived from the investment of the Company's cash balances in
interest bearing cash accounts, cash equivalents and marketable
securities during the period ended June 30, 1997.
Selling, general and administrative expenses ("SG&A") totaled
$1.5 million for the six months ended June 30, 1997, representing
an increase of 29.9% over the $1.4 million recorded during the
six months ended June 30, 1996. The increase in SG&A is a result
of the expansion of the operations of Paratech, and the increased
sales and support staff at the Company. See "General."
The tax provisions of $97,700 for the six months ended June
30, 1997, and $45,700 for the six months ended June 30, 1996,
reflect an effective rate of 40% for federal and state taxes
During the six months ended June 30, 1997, the Company entered
into new lease transactions totaling $25.4 million of equipment
cost as compared with $32.0 million for the six months ended June
30, 1996. See "General" and "Lease Accounting." During the six
months ended June 30, 1997, the Company entered into $32.2
million of non-recourse lease financing arrangements, as compared
with $27.4 million for the six months ended June 30, 1996. Non-
recourse debt entered during the six months ended June 30, 1997
increased at a faster rate than new lease origination as a result
of the timing of the closing of certain large lease transactions.
Of the total amount of non-recourse debt $13.3 million related to
leases that commenced in December 1996, but for which the Company
was not required to pay for the equipment until January 1997.
This amount was recorded as accounts payable-leases on the
Company's December 31, 1996 balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had $5.4 million in cash,
cash equivalents and marketable securities, including $600,000 of
restricted cash pledged as additional collateral under a Letter
of Credit arrangement. Substantially all of this amount was
invested in interest-bearing savings accounts, money market
accounts established by major commercial banks, or in United
States Government or other AA rated obligations. Since
inception, the Company has been able to cover its SG&A expenses
from internally generated cash flow and has never had to borrow
funds to cover such operating expenses. Although the Company's
business is subject to monthly and quarterly fluctuations that
may require the Company to use its cash balances to cover such
expenses for short periods of time, including for the purchase of
equipment on lease, the Company does not anticipate having to use
significant amounts of its cash balances to cover such expenses.
The Company finances substantially all of its leases by
discounting the payment streams on a non-recourse basis through
various banks and financial institutions. Thus, the only cash
required in these lease transactions is the residual value
investment by the Company. The Company believes that it
currently has sufficient resources to make the residual value
investments required to grow its lease portfolio. In addition,
the Company has numerous options available to it for the
financing of residual value investments, including sales of
equipment on lease to equipment
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<PAGE>
investors, residual value sharing arrangements, recourse loans
and non-recourse loans. The Company intends to use, on an
opportunistic basis, all such available resources in order to
maximize its portfolio of equipment on lease.
During the six months ended June 30, 1997, the Company entered
into several residual value sharing and financing arrangements
with an equipment investor totaling $8.0 million. This investor
(i) purchased a portion of the Company's residual value of
equipment on lease in exchange for the right to share in
remarketing proceeds generated from the equipment upon lease, and
(ii) provided recourse financing for the remaining portion of the
Company's residual value investment. The equipment on lease and
the related leases serve as collateral for these financings. The
Company expects to repay these loans through the proceeds
generated from remarketing the subject equipment. These
transactions allow the Company to continue to grow and expand its
lease portfolio without significantly affecting its current cash
balances.
At June 30, 1997, the Company had two lines of credit
available. These credit lines allow the Company to borrow up to
$1.25 million in the aggregate and are secured by equipment and
contracts to sell or lease that equipment. Borrowings under
these lines bear interest at 1% above the prime rate. In
addition, one of these lines offers the Company the ability to
borrow up to $100,000 on an unsecured basis. The purpose of
these credit lines is to allow the Company to pay its suppliers
on a timely basis while waiting for the customer to pay or for
the non-recourse financing to occur. During the six months ended
June 30, 1997, the Company had not borrowed any amounts from
these lines, and accordingly had nothing outstanding as of June
30, 1997. As a result of its cash balances, the Company has been
able to internally bridge finance its equipment purchases.
During the six months ended June 30, 1997, the Board of
Directors of the Company approved a plan that would allow for the
repurchase of up to $500,000 worth of common stock of the
Company. The repurchase program took effect immediately and is
authorized to continue for a period of two years. Subject to
applicable rules, the plan allows the Company to repurchase
shares at any time during the authorized period in any increments
it deems appropriate. As of June 30, 1997, the Company had
repurchased 30,000 shares for a cash purchase price of $18,600.
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISK
Statements contained in this Form 10-Q which are not
historical facts are forward-looking statements. The forward-
looking statements in this Form 10-Q are made pursuant to the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements made herein
contain a number of risks and uncertainties that could cause
actual results to differ materially. These risks and
uncertainties include, but are not limited to, the specific
factors impacting the Company's business discussed under the
caption "General", as well as increased competition; the
availability of computer equipment; the ability of the Company to
expand its operations and attract and retain qualified sales
representatives experienced in the purchase, sale and lease of
new and used computer equipment; technological obsolescence of
the Company's portfolio of computer equipment; and general
economic conditions.
-11-
<PAGE>
PART II: OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
27. Financial Data Schedule.
(b) Reports on Form 8-K.
-------------------
None.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
PARAMOUNT FINANCIAL CORPORATION
Date: August 13, 1997 By: /s/ Paul Vecker
----------------------------------
Paul Vecker, Senior Vice President
and Chief Fiancial Officer
-13-
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 889
<SECURITIES> 4,447
<RECEIVABLES> 4,328
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,958
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 8,238
<TOTAL-LIABILITY-AND-EQUITY> 59,958
<SALES> 5,814
<TOTAL-REVENUES> 8,908
<CGS> 5,258
<TOTAL-COSTS> 8,784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 124
<INCOME-TAX> 50
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
